The reopening of the Strait of Hormuz under the latest US-Iran ceasefire agreement has eased immediate concerns over global energy supplies, but economists say Gulf economies are unlikely to experience a rapid rebound as trade disruptions, weaker oil revenues and cautious investor sentiment continue to weigh on growth.
Oxford Economics has significantly lowered its outlook for the Gulf Cooperation Council (GCC), forecasting the region’s combined real GDP to contract by 2.4 percent in 2026. The revised estimate is notably weaker than its earlier projection of a 1.2 percent decline.
The downgrade reflects the prolonged impact of conflict-related disruptions that reduced oil exports, interrupted shipping activity and delayed investment decisions across the region. According to Oxford Economics, recent production and trade figures indicate economic activity has weakened more than expected, while export recovery remains sluggish despite progress toward peace.
Azad Zangana, Head of GCC Macro at Oxford Economics, said shipping data suggests trade flows have not recovered as quickly as anticipated following the initial ceasefire announcement.
While the firm expects a broader peace agreement to be reached in the coming months, it has postponed its forecast for a meaningful recovery in shipping activity until the beginning of next year.
The Strait of Hormuz remains one of the world’s most important energy routes, handling around one-fifth of global oil consumption and nearly a quarter of international liquefied natural gas trade. Although the latest agreement provides for its reopening, analysts believe shipping companies, insurers and traders are likely to proceed cautiously until confidence in the ceasefire strengthens.
Maritime tracking data shows tanker traffic remains below pre-conflict levels, while insurance costs for vessels operating in Gulf waters continue to reflect heightened geopolitical risks.
Other international institutions have expressed similar concerns. Earlier this year, the International Monetary Fund reduced its growth outlook for the GCC, citing prolonged trade disruptions and lower hydrocarbon exports. The World Bank has also warned that regional geopolitical tensions remain a significant risk to economic performance.
The slowdown extends beyond the energy sector. Oxford Economics now expects non-oil GDP across the GCC to contract by 1.1 percent this year as businesses delay spending plans and investors seek higher returns to offset perceived risks.
Economists say many governments and private-sector firms have become more selective about approving new projects, while foreign investors remain cautious despite signs of easing tensions.
At the same time, oil prices have retreated sharply from conflict-driven highs. Brent crude has fallen around 10 percent since news of the ceasefire emerged, reducing revenue expectations for Gulf governments that still rely heavily on hydrocarbon exports.
Major economic diversification initiatives, including Saudi Arabia’s Vision 2030 and the UAE’s industrial development programmes, are expected to continue. However, analysts believe spending priorities could become more targeted if energy income remains under pressure.
While the ceasefire has reduced immediate risks to regional stability, economists say a full recovery will depend on lasting political progress, stronger trade flows and the return of investor confidence across the Gulf.
